UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4410
OPPENHEIMER DISCOVERY FUND
(Exact name of registrant as specified in charter)
6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924
(Address of principal executive offices) (Zip code)
ROBERT G. ZACK, ESQ.
OPPENHEIMERFUNDS, INC.
TWO WORLD FINANCIAL CENTER, NEW YORK, NEW YORK 10281-1008
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
Date of fiscal year end: SEPTEMBER
Date of reporting period: 09/30/2006
ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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TOP TEN COMMON STOCK INDUSTRIES
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Health Care Equipment & Supplies 10.5%
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Health Care Providers & Services 8.3
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Commercial Services & Supplies 7.1
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Internet Software & Services 7.0
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Semiconductors & Semiconductor Equipment 6.8
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Hotels, Restaurants & Leisure 5.2
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Software 4.6
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Biotechnology 3.8
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Internet & Catalog Retail 3.6
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IT Services 3.3
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2006, and are based on net assets.
TOP TEN COMMON STOCK HOLDINGS
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SBA Communications Corp. 2.2%
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Life Time Fitness, Inc. 1.8
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BE Aerospace, Inc. 1.6
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Hologic, Inc. 1.5
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NutriSystem, Inc. 1.5
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Diodes, Inc. 1.5
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Ultimate Software Group, Inc. (The) 1.4
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j2 Global Communications, Inc. 1.4
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Covance, Inc. 1.4
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VCA Antech, Inc. 1.3
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2006, and are based on net assets. For more current Fund holdings,
please visit www.oppenheimerfunds.com.
8 | OPPENHEIMER DISCOVERY FUND
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SECTOR ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Information Technology 24.5%
Health Care 24.3
Industrials 17.8
Consumer Discretionary 12.9
Financials 8.4
Energy 5.0
Telecommunication Services 4.4
Consumer Staples 2.0
Materials 0.7
Portfolio holdings and allocations are subject to change. Percentages are as of
September 30, 2006, and are based on the total market value of common stocks.
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9 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED SEPTEMBER 30, 2006, FOLLOWED
BY A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO AN APPROPRIATE
BROAD-BASED MARKET INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. For the 12-month period ended
September 30, 2006, Oppenheimer Discovery Fund's Class A shares (without sales
charge) produced total returns that lagged behind its benchmark, the Russell
2000 Index. We attribute the Fund's relative underperformance to unfavorable
stock selection primarily within the health care and information technology
areas. In contrast to the Fund's overall returns, it benefited from positive
performance generated by holdings within the telecommunication services sectors.
The Fund's investment strategy focuses on small-cap growth companies that
exhibit leadership potential within their market sector. Specifically, by
employing a disciplined, research-driven stock selection process combined with a
risk control strategy, we seek to uncover little known companies with a
competitive edge within their marketplace. We target those we believe offer
innovative products or services, fast growing earnings, sustainable growth rates
and accomplished management teams. And because the small-cap universe can be
quite volatile, we seek to diversify the Fund with investments among many high
potential companies across the full range of market sectors.
Although the Fund's overall performance disappointed, specific holdings
within the technology and telecommunication services sectors delivered strong
performance. Within the technology sector, top contributors to Fund performance
included Akamai Technologies, Inc. and Diodes, Inc. Akamai Technologies, a
global service provider for accelerating content and business processes online,
delivered strong results due to its high revenue and strong earnings growth over
the period. Semiconductor company Diodes benefited from a significant gain in
market share combined with a successful new product line. We have since exited
our position in Akamai Technologies.
The Fund's holdings within the telecommunication services sector produced
strong performance as these stocks continued to benefit from the tremendous
growth seen within the cell phone industry. As worldwide demand for cell phones
has increased, many companies within the industry have flourished including
tower companies, which are involved in the communication transmission for cell
phones. The Fund's holdings within this area have performed strongly over the
period, with particularly positive performance coming from SBA Communications
Corp. SBA Communications leases antenna space to wireless carriers on the towers
it owns and manages. The company continued to report strong growth as its
business expanded, sending the stock price higher. Individual securities within
the healthcare sector also contributed to the Fund's performance, which
10 | OPPENHEIMER DISCOVERY FUND
included Hologic, Inc. and Psychiatric Solutions, Inc. Both companies
outperformed due to better than anticipated earnings growth.
On the negative side, the largest detractor from Fund performance was FLIR
Systems, Inc., a defense electronics company, which declined as the company lost
multiple defense contracts. Many investors interpreted this as a possible trend
and sold their positions, sending the stock price down. We have since exited the
stock. Within the health care area, top performance detractors included medical
device makers, FoxHollow Technologies, Inc., Syneron Medical Ltd. and
NeuroMetrix, Inc. FoxHollow Technologies suffered as the company underwent a
major management change and failed to meet projected earnings expectations.
Syneron Medical Ltd. declined as a result of disappointing order trends, which
reflected in lower earnings growth. And NeuroMetrix suffered from unfavorable
investor sentiment despite the company's very favorable fundamental growth
trends. We have since sold our positions in FoxHollow Technologies and Syneron.
Lastly, within the information technology sector disappointments included
Rackable Systems, Inc. and Tekelec. Both companies declined due to disappointing
financial results and lower than anticipated growth trends. We exited our
position in Tekelec.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each class of shares of the
Fund held until September 30, 2006. In the case of Class A, Class B, Class C and
Class Y shares, performance is measured over a ten fiscal year period. In the
case of Class N shares, performance is measured from inception of the Class on
March 1, 2001. The Fund's performance reflects the deduction of the maximum
initial sales charge on Class A shares, the applicable contingent deferred sales
charge on Class B, Class C and Class N shares, and reinvestments of all
dividends and capital gains distributions. Past performance cannot guarantee
future results.
The Fund's performance is compared to the performance of the Russell 2000
Index and the Standard & Poor's (S&P) 500 Index. The Russell 2000 Index is a
capitalization-weighted index of 2,000 U.S. issuers whose common stocks are
traded on the New York and American Stock Exchanges and NASDAQ, and is widely
recognized as a measure of the performance of mid-capitalization stocks. The S&P
500 Index is a broad-based index of equity securities widely regarded as a
general measure of the performance of the U.S. equity securities market. Index
performance reflects the reinvestment of income but does not consider the effect
of transaction costs, and none of the data in the graphs shows the effect of
taxes. The Fund's performance reflects the effects of the Fund's business and
operating expenses. While index comparisons may be useful to provide a benchmark
for the Fund's performance, it must be noted that the Fund's investments are not
limited to the investments in either index.
11 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class A)
Russell 2000 Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
(Class A) 2000 Index S&P 500 Index
-------------- ---------- -------------
09/30/1996 9,425 10,000 10,000
12/31/1996 8,856 10,520 10,833
03/31/1997 7,704 9,976 11,124
06/30/1997 9,130 11,593 13,064
09/30/1997 10,288 13,319 14,043
12/31/1997 9,773 12,873 14,446
03/31/1998 10,864 14,168 16,459
06/30/1998 10,370 13,507 17,006
09/30/1998 8,150 10,786 15,318
12/31/1998 9,578 12,545 18,577
03/31/1999 8,537 11,865 19,502
06/30/1999 9,340 13,710 20,874
09/30/1999 9,094 12,843 19,574
12/31/1999 14,492 15,212 22,484
03/31/2000 16,665 16,289 22,999
06/30/2000 14,512 15,674 22,388
09/30/2000 14,746 15,847 22,171
12/31/2000 12,571 14,752 20,438
03/31/2001 10,162 13,793 18,016
06/30/2001 12,158 15,763 19,070
09/30/2001 9,288 12,486 16,272
12/31/2001 11,113 15,119 18,011
03/31/2002 11,040 15,721 18,060
06/30/2002 9,381 14,408 15,642
09/30/2002 7,929 11,325 12,941
12/31/2002 8,435 12,022 14,032
03/31/2003 8,053 11,482 13,590
06/30/2003 9,777 14,172 15,681
09/30/2003 10,897 15,458 16,096
12/31/2003 11,723 17,703 18,054
03/31/2004 12,152 18,811 18,360
06/30/2004 12,018 18,900 18,675
09/30/2004 10,925 18,360 18,326
12/31/2004 12,189 20,948 20,017
03/31/2005 11,509 19,830 19,587
06/30/2005 11,742 20,686 19,855
09/30/2005 12,346 21,656 20,571
12/31/2005 12,352 21,902 20,999
03/31/2006 13,946 24,955 21,883
06/30/2006 13,011 23,701 21,568
09/30/2006 12,189 23,805 22,788
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
9/30/06
1-Year -6.95% 5-Year 4.34% 10-Year 2.00%
12 | OPPENHEIMER DISCOVERY FUND
CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class B)
Russell 2000 Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
(Class B) 2000 Index S&P 500 Index
-------------- ---------- -------------
09/30/1996 10,000 10,000 10,000
12/31/1996 9,377 10,520 10,833
03/31/1997 8,145 9,976 11,124
06/30/1997 9,634 11,593 13,064
09/30/1997 10,833 13,319 14,043
12/31/1997 10,271 12,873 14,446
03/31/1998 11,397 14,168 16,459
06/30/1998 10,859 13,507 17,006
09/30/1998 8,518 10,786 15,318
12/31/1998 9,990 12,545 18,577
03/31/1999 8,887 11,865 19,502
06/30/1999 9,707 13,710 20,874
09/30/1999 9,432 12,843 19,574
12/31/1999 15,003 15,212 22,484
03/31/2000 17,223 16,289 22,999
06/30/2000 14,969 15,674 22,388
09/30/2000 15,181 15,847 22,171
12/31/2000 12,918 14,752 20,438
03/31/2001 10,422 13,793 18,016
06/30/2001 12,447 15,763 19,070
09/30/2001 9,491 12,486 16,272
12/31/2001 11,332 15,119 18,011
03/31/2002 11,239 15,721 18,060
06/30/2002 9,531 14,408 15,642
09/30/2002 8,046 11,325 12,941
12/31/2002 8,559 12,022 14,032
03/31/2003 8,171 11,482 13,590
06/30/2003 9,921 14,172 15,681
09/30/2003 11,057 15,458 16,096
12/31/2003 11,895 17,703 18,054
03/31/2004 12,331 18,811 18,360
06/30/2004 12,194 18,900 18,675
09/30/2004 11,086 18,360 18,326
12/31/2004 12,368 20,948 20,017
03/31/2005 11,679 19,830 19,587
06/30/2005 11,915 20,686 19,855
09/30/2005 12,528 21,656 20,571
12/31/2005 12,533 21,902 20,999
03/31/2006 14,152 24,955 21,883
06/30/2006 13,203 23,701 21,568
09/30/2006 12,368 23,805 22,788
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
9/30/06
1-Year -6.96% 5-Year 4.42% 10-Year 2.15%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, THE 10-YEAR RETURN FOR CLASS B SHARES
USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR
FURTHER INFORMATION.
13 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class C)
Russell 2000 Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
(Class C) 2000 Index S&P 500 Index
-------------- ---------- -------------
09/30/1996 10,000 10,000 10,000
12/31/1996 9,376 10,520 10,833
03/31/1997 8,144 9,976 11,124
06/30/1997 9,634 11,593 13,064
09/30/1997 10,839 13,319 14,043
12/31/1997 10,278 12,873 14,446
03/31/1998 11,406 14,168 16,459
06/30/1998 10,866 13,507 17,006
09/30/1998 8,525 10,786 15,318
12/31/1998 9,997 12,545 18,577
03/31/1999 8,896 11,865 19,502
06/30/1999 9,715 13,710 20,874
09/30/1999 9,440 12,843 19,574
12/31/1999 15,012 15,212 22,484
03/31/2000 17,234 16,289 22,999
06/30/2000 14,981 15,674 22,388
09/30/2000 15,193 15,847 22,171
12/31/2000 12,928 14,752 20,438
03/31/2001 10,429 13,793 18,016
06/30/2001 12,457 15,763 19,070
09/30/2001 9,500 12,486 16,272
12/31/2001 11,342 15,119 18,011
03/31/2002 11,244 15,721 18,060
06/30/2002 9,537 14,408 15,642
09/30/2002 8,046 11,325 12,941
12/31/2002 8,541 12,022 14,032
03/31/2003 8,144 11,482 13,590
06/30/2003 9,867 14,172 15,681
09/30/2003 10,976 15,458 16,096
12/31/2003 11,785 17,703 18,054
03/31/2004 12,191 18,811 18,360
06/30/2004 12,030 18,900 18,675
09/30/2004 10,918 18,360 18,326
12/31/2004 12,155 20,948 20,017
03/31/2005 11,452 19,830 19,587
06/30/2005 11,660 20,686 19,855
09/30/2005 12,237 21,656 20,571
12/31/2005 12,216 21,902 20,999
03/31/2006 13,768 24,955 21,883
06/30/2006 12,818 23,701 21,568
09/30/2006 11,987 23,805 22,788
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
9/30/06
1-Year -3.03% 5-Year 4.76% 10-Year 1.83%
14 | OPPENHEIMER DISCOVERY FUND
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class N)
Russell 2000 Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
(Class N) 2000 Index S&P 500 Index
-------------- ---------- -------------
03/01/2001 10,000 10,000 10,000
03/31/2001 9,248 9,511 9,367
06/30/2001 11,059 10,870 9,915
09/30/2001 8,440 8,610 8,460
12/31/2001 10,092 10,426 9,364
03/31/2002 10,018 10,841 9,390
06/30/2002 8,507 9,935 8,132
09/30/2002 7,187 7,809 6,728
12/31/2002 7,635 8,290 7,295
03/31/2003 7,290 7,918 7,065
06/30/2003 8,842 9,772 8,153
09/30/2003 9,852 10,659 8,368
12/31/2003 10,588 12,207 9,387
03/31/2004 10,969 12,972 9,545
06/30/2004 10,839 13,033 9,710
09/30/2004 9,847 12,661 9,528
12/31/2004 10,977 14,445 10,407
03/31/2005 10,358 13,674 10,184
06/30/2005 10,560 14,264 10,323
09/30/2005 11,094 14,933 10,695
12/31/2005 11,092 15,103 10,918
03/31/2006 12,516 17,208 11,377
06/30/2006 11,667 16,343 11,213
09/30/2006 10,923 16,415 11,848
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
9/30/06
1-Year -2.53% 5-Year 5.29% Since Inception (3/1/01) 1.59%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, THE 10-YEAR RETURN FOR CLASS B SHARES
USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR
FURTHER INFORMATION.
15 | OPPENHEIMER DISCOVERY FUND
FUND PERFORMANCE DISCUSSION
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CLASS Y SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Discovery Fund (Class Y)
Russell 2000 Index
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer
Discovery Fund Russell
(Class N) 2000 Index S&P 500 Index
-------------- ---------- -------------
09/30/1996 10,000 10,000 10,000
12/31/1996 9,403 10,520 10,833
03/31/1997 8,187 9,976 11,124
06/30/1997 9,709 11,593 13,064
09/30/1997 10,950 13,319 14,043
12/31/1997 10,413 12,873 14,446
03/31/1998 11,588 14,168 16,459
06/30/1998 11,069 13,507 17,006
09/30/1998 8,709 10,786 15,318
12/31/1998 10,232 12,545 18,577
03/31/1999 9,126 11,865 19,502
06/30/1999 9,989 13,710 20,874
09/30/1999 9,738 12,843 19,574
12/31/1999 15,524 15,212 22,484
03/31/2000 17,864 16,289 22,999
06/30/2000 15,576 15,674 22,388
09/30/2000 15,841 15,847 22,171
12/31/2000 13,500 14,752 20,438
03/31/2001 10,921 13,793 18,016
06/30/2001 13,079 15,763 19,070
09/30/2001 9,999 12,486 16,272
12/31/2001 11,972 15,119 18,011
03/31/2002 11,904 15,721 18,060
06/30/2002 10,123 14,408 15,642
09/30/2002 8,562 11,325 12,941
12/31/2002 9,116 12,022 14,032
03/31/2003 8,709 11,482 13,590
06/30/2003 10,576 14,172 15,681
09/30/2003 11,798 15,458 16,096
12/31/2003 12,702 17,703 18,054
03/31/2004 13,179 18,811 18,360
06/30/2004 13,044 18,900 18,675
09/30/2004 11,869 18,360 18,326
12/31/2004 13,253 20,948 20,017
03/31/2005 12,522 19,830 19,587
06/30/2005 12,784 20,686 19,855
09/30/2005 13,450 21,656 20,571
12/31/2005 13,465 21,902 20,999
03/31/2006 15,211 24,955 21,883
06/30/2006 14,198 23,701 21,568
09/30/2006 13,309 23,805 22,788
AVERAGE ANNUAL TOTAL RETURNS OF CLASS Y SHARES OF THE FUND AT 9/30/06
1-Year -1.05% 5-Year 5.88% 10-Year 2.90%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM,
OR CALL US AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE,
REINVESTED DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES,
THE CURRENT MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE
CONTINGENT DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 2% (5-YEAR); AND FOR CLASS C
AND N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR PERIOD.
THERE IS NO SALES CHARGE FOR CLASS Y SHARES. BECAUSE CLASS B SHARES CONVERT TO
CLASS A SHARES 72 MONTHS AFTER PURCHASE, THE 10-YEAR RETURN FOR CLASS B SHARES
USES CLASS A PERFORMANCE FOR THE PERIOD AFTER CONVERSION. SEE PAGE 17 FOR
FURTHER INFORMATION.
16 | OPPENHEIMER DISCOVERY FUND
NOTES
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Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND OTHER
CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR
FINANCIAL ADVISOR, CALLING US AT 1.800.525.7048 OR VISITING OUR WEBSITE AT
WWW.OPPENHEIMERFUNDS.COM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
CLASS A shares of the Fund were first publicly offered on 9/11/86. Unless
otherwise noted, Class A returns include the current maximum initial sales
charge of 5.75%. The Fund's maximum sales charge for Class A shares was lower
prior to 4/4/91, so actual performance may have been higher.
CLASS B shares of the Fund were first publicly offered on 4/4/94. Unless
otherwise noted, Class B returns include the applicable contingent deferred
sales charge of 5% (1-year) and 2% (5-year). Because Class B shares convert to
Class A shares 72 months after purchase, the 10-year return for Class B uses
Class A performance for the period after conversion. Class B shares are subject
to an annual 0.75% asset-based sales charge.
CLASS C shares of the Fund were first publicly offered on 10/2/95. Unless
otherwise noted, Class C returns include the contingent deferred sales charge of
1% for the 1-year period. Class C shares are subject to an annual 0.75%
asset-based sales charge.
CLASS N shares of the Fund were first publicly offered on 3/1/01. Class N shares
are offered only through retirement plans. Unless otherwise noted, Class N
returns include the contingent deferred sales charge of 1% for the 1-year
period. Class N shares are subject to an annual 0.25% asset-based sales charge.
17 | OPPENHEIMER DISCOVERY FUND
NOTES
- --------------------------------------------------------------------------------
CLASS Y shares of the Fund were first publicly offered on 6/1/94. Class Y shares
are offered only to certain institutional investors under special agreement with
the Distributor.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
18 | OPPENHEIMER DISCOVERY FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended September 30, 2006.
ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line for the class of shares you hold, together with the amount you invested, to
estimate the expense that you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.60), then multiply the result by the number in the "actual" line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio for each class of shares, and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical example for
the class of shares you hold with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front-end
or contingent deferred sales charges (loads), redemption fees, or a $12.00 fee
imposed annually on accounts valued at less than $500.00 (subject to exceptions
19 | OPPENHEIMER DISCOVERY FUND
FUND EXPENSES
- --------------------------------------------------------------------------------
described in the Statement of Additional Information). Therefore, the
"hypothetical" lines of the table are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs would
have been higher.
- --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(4/1/06) (9/30/06) SEPTEMBER 30, 2006
- --------------------------------------------------------------------------------
Class A Actual $1,000.00 $ 874.00 $ 5.94
- --------------------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,018.75 6.40
- --------------------------------------------------------------------------------
Class B Actual 1,000.00 870.80 9.67
- --------------------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,014.79 10.41
- --------------------------------------------------------------------------------
Class C Actual 1,000.00 870.70 9.71
- --------------------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,014.74 10.46
- --------------------------------------------------------------------------------
Class N Actual 1,000.00 872.70 7.26
- --------------------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,017.35 7.82
- --------------------------------------------------------------------------------
Class Y Actual 1,000.00 874.90 5.14
- --------------------------------------------------------------------------------
Class Y Hypothetical 1,000.00 1,019.60 5.53
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Fund's annualized expense ratio for that class,
multiplied by the average account value over the period, multiplied by 183/365
(to reflect the one-half year period). Those annualized expense ratios based on
the 6-month period ended September 30, 2006 are as follows:
CLASS EXPENSE RATIOS
- -------------------------------
Class A 1.26%
- -------------------------------
Class B 2.05
- -------------------------------
Class C 2.06
- -------------------------------
Class N 1.54
- -------------------------------
Class Y 1.09
The expense ratios reflect voluntary waivers or reimbursements of expenses by
the Fund's Manager and Transfer Agent that can be terminated at any time,
without advance notice. The "Financial Highlights" tables in the Fund's
financial statements, included in this report, also show the gross expense
ratios, without such waivers or reimbursements.
- --------------------------------------------------------------------------------
20 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS September 30, 2006
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--98.7%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--12.7%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--1.3%
LKQ Corp. 1 420,700 $ 9,242,779
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--5.2%
BJ's Restaurants, Inc. 1 179,200 3,944,192
- --------------------------------------------------------------------------------
Chipotle Mexican
Grill, Inc., Cl. A 1 74,200 3,685,514
- --------------------------------------------------------------------------------
Life Time Fitness, Inc. 1 284,500 13,169,505
- --------------------------------------------------------------------------------
Orient-Express Hotel
Ltd. 145,500 5,438,790
- --------------------------------------------------------------------------------
Panera Bread Co.,
Cl. A 1 91,700 5,341,525
- --------------------------------------------------------------------------------
Scientific Games
Corp., Cl. A 1 191,100 6,076,980
-----------
37,656,506
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--3.6%
Coldwater Creek, Inc. 1 263,500 7,578,260
- --------------------------------------------------------------------------------
NutriSystem, Inc. 1 170,500 10,620,445
- --------------------------------------------------------------------------------
VistaPrint Ltd. 1 298,700 7,748,278
-----------
25,946,983
- --------------------------------------------------------------------------------
MEDIA--1.1%
Focus Media Holding
Ltd., ADR 1 145,300 8,415,776
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--1.5%
Pantry, Inc. (The) 1 126,700 7,142,079
- --------------------------------------------------------------------------------
Tractor Supply Co. 1 83,600 4,034,536
-----------
11,176,615
- --------------------------------------------------------------------------------
CONSUMER STAPLES--2.0%
- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.9%
Corn Products
International, Inc. 191,800 6,241,172
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.1%
Bare Escentuals, Inc. 1 10,500 285,075
- --------------------------------------------------------------------------------
Herbalife Ltd. 1 204,700 7,754,036
-----------
8,039,111
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY--5.0%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--3.1%
Core Laboratories
NV 1 48,600 $ 3,100,680
- --------------------------------------------------------------------------------
Dril-Quip, Inc. 1 100,100 6,774,768
- --------------------------------------------------------------------------------
Hornbeck Offshore
Services, Inc. 1 233,900 7,835,650
- --------------------------------------------------------------------------------
Oceaneering
International, Inc. 1 144,200 4,441,360
-----------
22,152,458
- --------------------------------------------------------------------------------
OIL & GAS--1.9%
Carrizo Oil & Gas,
Inc. 1 266,200 6,865,298
- --------------------------------------------------------------------------------
Range Resources
Corp. 282,300 7,125,252
-----------
13,990,550
- --------------------------------------------------------------------------------
FINANCIALS--8.3%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--3.3%
GFI Group, Inc. 1 151,600 8,381,964
- --------------------------------------------------------------------------------
Greenhill & Co., Inc. 123,300 8,263,566
- --------------------------------------------------------------------------------
Investment
Technology
Group, Inc. 1 159,400 7,133,150
-----------
23,778,680
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.4%
East West Bancorp,
Inc. 177,400 7,026,814
- --------------------------------------------------------------------------------
First Republic Bank 81,400 3,464,384
-----------
10,491,198
- --------------------------------------------------------------------------------
INSURANCE--2.4%
Philadelphia
Consolidated
Holding Co. 1 196,400 7,812,792
- --------------------------------------------------------------------------------
Tower Group, Inc. 282,300 9,414,705
-----------
17,227,497
- --------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--1.2%
Trammell Crow Co. 1 247,200 9,025,272
21 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE--24.0%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--3.8%
BioMarin
Pharmaceutical, Inc. 1 240,900 $ 3,428,007
- --------------------------------------------------------------------------------
Cubist
Pharmaceuticals, Inc. 1 381,500 8,293,810
- --------------------------------------------------------------------------------
Digene Corp. 1 187,400 8,086,310
- --------------------------------------------------------------------------------
Illumina, Inc. 1 223,700 7,391,048
- --------------------------------------------------------------------------------
VaxGen, Inc. 1,2 75,470 288,673
-----------
27,487,848
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--10.5%
ArthroCare Corp. 1 201,800 9,456,348
- --------------------------------------------------------------------------------
Gen-Probe, Inc. 1 105,700 4,956,273
- --------------------------------------------------------------------------------
Hologic, Inc. 1 244,700 10,649,344
- --------------------------------------------------------------------------------
IDEXX Laboratories,
Inc. 1 40,200 3,663,828
- --------------------------------------------------------------------------------
Intuitive Surgical, Inc. 1 59,100 6,232,095
- --------------------------------------------------------------------------------
LifeCell Corp. 1 299,100 9,637,002
- --------------------------------------------------------------------------------
Meridian Bioscience,
Inc. 305,600 7,184,656
- --------------------------------------------------------------------------------
NeuroMetrix, Inc. 1 283,300 5,385,533
- --------------------------------------------------------------------------------
ResMed, Inc. 1 182,900 7,361,725
- --------------------------------------------------------------------------------
Respironics, Inc. 1 144,700 5,586,867
- --------------------------------------------------------------------------------
Ventana Medical
Systems, Inc. 1 155,900 6,365,397
-----------
76,479,068
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--8.3%
Covance, Inc. 1 148,400 9,850,792
- --------------------------------------------------------------------------------
Healthways, Inc. 1 140,200 6,252,920
- --------------------------------------------------------------------------------
ICON plc, Sponsored
ADR 1 109,100 7,700,278
- --------------------------------------------------------------------------------
MWI Veterinary
Supply, Inc. 1 227,600 7,631,428
- --------------------------------------------------------------------------------
Psychiatric Solutions,
Inc. 1 274,100 9,344,069
- --------------------------------------------------------------------------------
VCA Antech, Inc. 1 270,500 9,754,230
- --------------------------------------------------------------------------------
WellCare Health
Plans, Inc. 1 171,779 9,727,845
-----------
60,261,562
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY--0.5%
Omnicell, Inc. 1 215,600 $ 3,857,084
- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.9%
Adams Respiratory
Therapeutics, Inc. 1 169,500 6,202,005
- --------------------------------------------------------------------------------
INDUSTRIALS--17.6%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.6%
BE Aerospace, Inc. 1 546,700 11,529,903
- --------------------------------------------------------------------------------
Ceradyne, Inc. 1 184,100 7,564,669
-----------
19,094,572
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--2.3%
Hub Group, Inc., Cl. A 1 335,600 7,644,968
- --------------------------------------------------------------------------------
UTi Worldwide, Inc. 324,790 9,084,376
-----------
16,729,344
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--7.1%
American
Reprographics Co. 1 262,200 8,406,132
- --------------------------------------------------------------------------------
Clean Harbors, Inc. 1 90,800 3,954,340
- --------------------------------------------------------------------------------
Corrections Corp.
of America 1 188,400 8,148,300
- --------------------------------------------------------------------------------
CoStar Group, Inc. 1 105,889 4,375,333
- --------------------------------------------------------------------------------
Kenexa Corp. 1 234,000 5,901,480
- --------------------------------------------------------------------------------
Mobile Mini, Inc. 1 263,700 7,491,717
- --------------------------------------------------------------------------------
Richie Bros
Auctioneers, Inc. 95,500 5,119,755
- --------------------------------------------------------------------------------
Stericycle, Inc. 1 109,900 7,669,921
-----------
51,066,978
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.8%
Energy Conversion
Devices, Inc. 1 154,800 5,733,792
- --------------------------------------------------------------------------------
MACHINERY--2.3%
Bucyrus International,
Inc., Cl. A 150,950 6,403,299
- --------------------------------------------------------------------------------
Gardner Denver, Inc. 1 197,500 6,533,300
- --------------------------------------------------------------------------------
Middleby Corp. (The) 1 48,600 3,745,116
-----------
16,681,715
22 | OPPENHEIMER DISCOVERY FUND
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MARINE--0.5%
American
Commercial Lines,
Inc. 1 63,400 $ 3,769,130
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--2.0%
Beacon Roofing
Supply, Inc. 1 343,300 6,948,392
- --------------------------------------------------------------------------------
MSC Industrial
Direct Co., Inc., Cl. A 88,700 3,613,638
- --------------------------------------------------------------------------------
Watsco, Inc. 81,100 3,731,411
-----------
14,293,441
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--24.1%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.5%
Ciena Corp. 1 135,314 3,687,307
- --------------------------------------------------------------------------------
F5 Networks, Inc. 1 133,000 7,144,760
-----------
10,832,067
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.9%
Rackable Systems,
Inc. 1 245,100 6,708,387
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--7.0%
Aquantive, Inc. 1 362,500 8,562,250
- --------------------------------------------------------------------------------
Bankrate, Inc. 1 113,600 3,017,216
- --------------------------------------------------------------------------------
Digital River, Inc. 1 144,300 7,376,616
- --------------------------------------------------------------------------------
DivX, Inc. 1 91,800 2,182,086
- --------------------------------------------------------------------------------
Equinix, Inc. 1 116,200 6,983,620
- --------------------------------------------------------------------------------
j2 Global
Communications,
Inc. 1 367,500 9,984,975
- --------------------------------------------------------------------------------
Knot, Inc. (The) 1 313,700 6,942,181
- --------------------------------------------------------------------------------
WebEx
Communications,
Inc. 1 142,200 5,548,644
-----------
50,597,588
- --------------------------------------------------------------------------------
IT SERVICES--3.3%
Heartland Payment
Systems, Inc. 235,000 6,109,998
- --------------------------------------------------------------------------------
Kanbay International,
Inc. 1 258,200 5,308,592
- --------------------------------------------------------------------------------
SRA International, Inc.,
Cl. A 1 131,700 3,958,902
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES Continued
VeriFone Holdings,
Inc. 1 303,400 $ 8,662,070
-----------
24,039,562
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--6.8%
ATMI, Inc. 1 321,500 9,346,005
- --------------------------------------------------------------------------------
Cymer, Inc. 1 139,100 6,107,881
- --------------------------------------------------------------------------------
Diodes, Inc. 1 245,950 10,617,662
- --------------------------------------------------------------------------------
FormFactor, Inc. 1 156,100 6,576,493
- --------------------------------------------------------------------------------
Microsemi Corp. 1 401,400 7,566,390
- --------------------------------------------------------------------------------
Netlogic
Microsystems, Inc. 1 214,750 5,448,208
- --------------------------------------------------------------------------------
Volterra
Semiconductor
Corp. 1 228,500 3,713,125
-----------
49,375,764
- --------------------------------------------------------------------------------
SOFTWARE--4.6%
Ansys, Inc. 1 159,200 7,033,456
- --------------------------------------------------------------------------------
Concur Technologies,
Inc. 1 639,300 9,301,815
- --------------------------------------------------------------------------------
Informatica Corp. 1 493,100 6,701,229
- --------------------------------------------------------------------------------
Ultimate Software
Group, Inc. (The) 1 447,400 10,527,322
-----------
33,563,822
- --------------------------------------------------------------------------------
MATERIALS--0.7%
- --------------------------------------------------------------------------------
METALS & MINING--0.7%
Oregon Steel Mills,
Inc. 1 108,000 5,277,960
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--4.3%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--2.1%
NeuStar, Inc., Cl. A 1 339,100 9,410,025
- --------------------------------------------------------------------------------
Time Warner
Telecom, Inc., Cl. A 1 325,000 6,178,250
-----------
15,588,275
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--2.2%
SBA Communications
Corp. 1 644,700 15,685,551
-----------
Total Common
Stocks (Cost $636,475,865) 716,710,112
23 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
Candescent
Technologies Corp.:
$2.50 Cv., Series D,
Vtg. 1,2 1,200,000 $ --
Sr. Exchangeable,
Series E, Vtg. 1,2 800,000 --
Sr. Exchangeable,
Series F, Vtg. 1,2 200,000 --
-----------
Total Preferred Stocks
(Cost $8,900,000) --
UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
Discovery
Laboratories, Inc.
Wts., Exp. 9/20/10 1,2
(Cost $0) 123,908 128,924
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -----------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--1.9%
Undivided interest of 1.32% in joint repurchase
agreement (Principal Amount/Value $1,040,829,000,
with a maturity value of $1,041,284,363) with
UBS Warburg LLC, 5.25%, dated 9/29/06, to
be repurchased at $13,731,005 on 10/2/06,
collateralized by Federal National
Mortgage Assn., 5%, 7/1/35-12/1/35,
with a value of $1,064,458,659
(Cost $13,725,000) $ 13,725,000 $ 13,725,000
- -----------------------------------------------------------------------------------
TOTAL INVESTMENTS,
AT VALUE
(COST $659,100,865) 100.6% 730,564,036
- -----------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS (0.6) (4,378,708)
------------------------------
NET ASSETS 100.0% $ 726,185,328
==============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of September 30, 2006 was $417,597, which represents
0.06% of the Fund's net assets, all of which is considered restricted. See Note
5 of accompanying Notes.
Represents ownership of at least 5% of the voting securities of the issuer, and
was an affiliate, as defined in the Investment Company Act of 1940, during the
period ended September 30, 2006. There were no affiliate securities held by the
Fund as of September 30, 2006. Transactions during the period in which the
issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES
SEPT. 30, 2005 ADDITIONS REDUCTIONS SEPT. 30, 2006
- ------------------------------------------------------------------------------------------
Regeneration Technologies, Inc. 666,900 -- 666,900 --
DIVIDEND REALIZED
INCOME LOSS
- ------------------------------------------------------------------------------------------
Regeneration Technologies, Inc. $ -- $ 896,030
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2006
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------
Investments, at value (cost $659,100,865)--see accompanying statement of investments $ 730,564,036
- ----------------------------------------------------------------------------------------------------
Cash 442,870
- ----------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 9,141,806
Shares of beneficial interest sold 283,072
Interest and dividends 16,515
Other 40,566
-------------
Total assets 740,488,865
- ----------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 12,289,209
Shares of beneficial interest redeemed 1,061,860
Distribution and service plan fees 401,702
Transfer and shareholder servicing agent fees 193,578
Trustees' compensation 187,869
Shareholder communications 124,804
Other 44,515
-------------
Total liabilities 14,303,537
- ----------------------------------------------------------------------------------------------------
NET ASSETS $ 726,185,328
=============
- ----------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 16,955
- ----------------------------------------------------------------------------------------------------
Additional paid-in capital 751,254,177
- ----------------------------------------------------------------------------------------------------
Accumulated net investment loss (182,941)
- ----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (96,366,034)
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 71,463,171
-------------
NET ASSETS $ 726,185,328
=============
25 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF ASSETS AND LIABILITIES Continued
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $527,434,477 and 12,149,179 shares of beneficial interest outstanding) $ 43.41
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $ 46.06
- ---------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $70,268,052 and 1,829,100 shares of beneficial interest outstanding) $ 38.42
- ---------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $36,128,089 and 920,750 shares of beneficial interest outstanding) $ 39.24
- ---------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $10,054,827 and 235,360 shares of beneficial interest outstanding) $ 42.72
- ---------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $82,299,883 and 1,820,993 shares of beneficial interest outstanding) $ 45.20
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
26 | OPPENHEIMER DISCOVERY FUND
STATEMENT OF OPERATIONS For the Year Ended September 30, 2006
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $3,008) $ 1,325,746
- ------------------------------------------------------------------------------------------------
Interest 948,305
- ------------------------------------------------------------------------------------------------
Other income 65,306
------------
Total investment income 2,339,357
- ------------------------------------------------------------------------------------------------
EXPENSES
- ------------------------------------------------------------------------------------------------
Management fees 5,754,762
- ------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,420,377
Class B 889,179
Class C 396,493
Class N 52,001
- ------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 1,750,483
Class B 305,890
Class C 162,637
Class N 42,177
Class Y 338,152
- ------------------------------------------------------------------------------------------------
Shareholder communications:
Class A 236,948
Class B 69,706
Class C 18,186
Class N 2,413
Class Y 21,341
- ------------------------------------------------------------------------------------------------
Custodian fees and expenses 8,683
- ------------------------------------------------------------------------------------------------
Total expenses 11,469,428
Less reduction to custodian expenses (8,683)
Less waivers and reimbursements of expenses (190,105)
------------
Net expenses 11,270,640
- ------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (8,931,283)
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies 55,128,792
Affiliated companies (896,030)
------------
Net realized gain 54,232,762
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments (53,226,378)
- ------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (7,924,899)
============
See accompanying Notes to Financial Statements.
27 | OPPENHEIMER DISCOVERY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2006 2005
- -------------------------------------------------------------------------------------------------
OPERATIONS
- -------------------------------------------------------------------------------------------------
Net investment loss $ (8,931,283) $ (7,810,811)
- -------------------------------------------------------------------------------------------------
Net realized gain 54,232,762 84,755,948
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (53,226,378) 32,274,867
-------------------------------
Net increase (decrease) in net assets resulting from operations (7,924,899) 109,220,004
- -------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial
interest transactions:
Class A (126,601,595) (115,688,246)
Class B (34,219,743) (34,760,587)
Class C (5,074,226) (7,538,655)
Class N 13,033 (680,613)
Class Y 39,730,162 (18,441,684)
- -------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------
Total decrease (134,077,268) (67,889,781)
- -------------------------------------------------------------------------------------------------
Beginning of period 860,262,596 928,152,377
-------------------------------
End of period (including accumulated net investment loss
of $182,941 and $220,149, respectively) $ 726,185,328 $ 860,262,596
===============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
28 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 43.97 $ 38.91 $ 38.81 $ 28.24 $ 33.08
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.44) 1 (.31) 1 (.37) (.26) (.22)
Net realized and unrealized gain (loss) (.12) 5.37 .47 10.83 (4.62)
-------------------------------------------------------------------------------
Total from investment operations (.56) 5.06 .10 10.57 (4.84)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.41 $ 43.97 $ 38.91 $ 38.81 $ 28.24
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (1.27)% 13.00% 0.26% 37.43% (14.63)%
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 527,434 $ 663,206 $ 694,976 $ 772,420 $ 572,843
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 587,358 $ 681,607 $ 775,665 $ 639,170 $ 753,304
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.98)% (0.74)% (1.00)% (0.83)% (0.74)%
Total expenses 1.28% 1.31% 1.29% 1.41% 1.45%
Expenses after payments and waivers
and reduction to custodian expenses 1.27% 1.26% 1.28% 1.35% 1.42%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 162% 135% 172% 143%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 39.23 $ 35.00 $ 35.21 $ 25.81 $ 30.46
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.72) 1 (.58) 1 (1.50) (1.09) (.91)
Net realized and unrealized gain (loss) (.09) 4.81 1.29 10.49 (3.74)
---------------------------------------------------------------------------
Total from investment operations (.81) 4.23 (.21) 9.40 (4.65)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 38.42 $ 39.23 $ 35.00 $ 35.21 $ 25.81
===========================================================================
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (2.06)% 12.08% (0.60)% 36.42% (15.27)%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 70,268 $ 104,447 $ 125,947 $ 160,851 $ 154,657
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 88,967 $ 114,500 $ 151,725 $ 148,410 $ 223,215
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.79)% (1.56)% (1.85)% (1.56)% (1.50)%
Total expenses 2.12% 2.20% 2.20% 2.35% 2.21%
Expenses after payments and waivers
and reduction to custodian expenses 2.08% 2.11% 2.13% 2.10% 2.18%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 162% 135% 172% 143%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
30 | OPPENHEIMER DISCOVERY FUND
CLASS C YEAR ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 40.06 $ 35.74 $ 35.93 $ 26.34 $ 31.10
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.73) 1 (.59) 1 (.82) (.44) (.59)
Net realized and unrealized gain (loss) (.09) 4.91 .63 10.03 (4.17)
---------------------------------------------------------------------------
Total from investment operations (.82) 4.32 (.19) 9.59 (4.76)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 39.24 $ 40.06 $ 35.74 $ 35.93 $ 26.34
===========================================================================
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (2.05)% 12.09% (0.53)% 36.41% (15.31)%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 36,128 $ 41,841 $ 44,415 $ 48,263 $ 34,673
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 39,709 $ 43,506 $ 49,464 $ 38,930 $ 45,655
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.79)% (1.54)% (1.80)% (1.58)% (1.50)%
Total expenses 2.16% 2.22% 2.19% 2.38% 2.21%
Expenses after payments and waivers
and reduction to custodian expenses 2.08% 2.09% 2.09% 2.12% 2.18%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 162% 135% 172% 143%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER DISCOVERY FUND
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 43.39 $ 38.51 $ 38.53 $ 28.11 $ 33.01
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.56) 1 (.42) 1 (.42) (.35) (.30)
Net realized and unrealized gain (loss) (.11) 5.30 .40 10.77 (4.60)
---------------------------------------------------------------------------
Total from investment operations (.67) 4.88 (.02) 10.42 (4.90)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 42.72 $ 43.39 $ 38.51 $ 38.53 $ 28.11
===========================================================================
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (1.54)% 12.67% (0.05)% 37.07% (14.84)%
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 10,055 $ 10,263 $ 9,719 $ 4,363 $ 2,236
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 10,473 $ 10,133 $ 7,381 $ 3,088 $ 1,786
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (1.27)% (1.03)% (1.26)% (1.13)% (0.97)%
Total expenses 1.62% 1.68% 1.72% 2.12% 1.68%
Expenses after payments and waivers
and reduction to custodian expenses 1.55% 1.56% 1.58% 1.65% 1.65%
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 162% 135% 172% 143%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER DISCOVERY FUND
CLASS Y YEAR ENDED SEPTEMBER 30, 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 45.68 $ 40.31 $ 40.07 $ 29.08 $ 33.96
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.36) 1 (.19) 1 (.21) (.26) (.06)
Net realized and unrealized gain (loss) (.12) 5.56 .45 11.25 (4.82)
-------------------------------------------------------------------------
Total from investment operations (.48) 5.37 .24 10.99 (4.88)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 45.20 $ 45.68 $ 40.31 $ 40.07 $ 29.08
=========================================================================
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 (1.05)% 13.32% 0.60% 37.79% (14.37)%
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 82,300 $ 40,506 $ 53,096 $ 57,074 $ 38,444
- ---------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 94,017 $ 45,955 $ 61,766 $ 43,531 $ 50,275
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.77)% (0.44)% (0.67)% (0.57)% (0.43)%
Total expenses 1.08% 1.01% 0.95% 1.16% 1.26%
Expenses after payments and waivers
and reduction to custodian expenses 1.05% 0.96% 0.95% 1.10% 1.11%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 162% 135% 172% 143%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year. Returns do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Discovery Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Fund's investment objective is to seek capital appreciation. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class N and Class Y shares.
Class A shares are sold at their offering price, which is normally net asset
value plus a front-end sales charge. Class B, Class C and Class N shares are
sold without a front-end sales charge but may be subject to a contingent
deferred sales charge (CDSC). Class N shares are sold only through retirement
plans. Retirement plans that offer Class N shares may impose charges on those
accounts. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Fund in general and exclusive
voting rights on matters that affect that class alone. Earnings, net assets and
net asset value per share may differ due to each class having its own expenses,
such as transfer and shareholder servicing agent fees and shareholder
communications, directly attributable to that class. Class A, B, C and N have
separate distribution and/or service plans. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The Fund assesses a 2% fee on the proceeds of
fund shares that are redeemed (either by selling or exchanging to another
Oppenheimer fund) within 30 days of their purchase. The fee, which is retained
by the Fund, is accounted for as an addition to paid-in capital.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities listed or traded on National
Stock Exchanges or other domestic exchanges are valued based on the last sale
price of the security traded on that exchange prior to the time when the Fund's
assets are valued. Securities traded on NASDAQ(R) are valued based on the
closing price provided by NASDAQ prior to the time when the Fund's assets are
valued. In the absence of a sale, the security is valued at the last sale price
on the prior trading day, if it is within the spread of the closing "bid" and
"asked" prices, and if not, at the closing bid price. Securities traded on
foreign exchanges are valued based on the last sale price on the principal
exchange on which the security is traded, as identified by the portfolio pricing
service, prior to the time when the Fund's assets are valued. In the absence of
a sale, the security is valued at the official closing price on the principal
exchange. Corporate, government and municipal debt instruments having a
remaining maturity in excess of sixty days and all mortgage-backed securities
34 | OPPENHEIMER DISCOVERY FUND
will be valued at the mean between the "bid" and "asked" prices. Futures
contracts traded on a commodities or futures exchange will be valued at the
final settlement price or official closing price on the principal exchange as
reported by such principal exchange at its trading session ending at, or most
recently prior to, the time when the Fund's assets are valued. Securities
(including restricted securities) for which market quotations are not readily
available are valued at their fair value. Foreign and domestic securities whose
values have been materially affected by what the Manager identifies as a
significant event occurring before the Fund's assets are valued but after the
close of their respective exchanges will be fair valued. Fair value is
determined in good faith using consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income are translated into U.S. dollars as of the close of the New
York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each
day the Exchange is open for business. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
35 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------------
$-- $ -- $ 94,516,389 $ 69,613,527
1. As of September 30, 2006, the Fund had $94,516,389 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of September 30, 2006,
details of the capital loss carryforward were as follows:
EXPIRING
-------------------------------
2011 $94,516,389
2. During the fiscal year ended September 30, 2006, the Fund utilized
$55,127,114 of capital loss carryforward to offset capital gains realized in
that fiscal year.
3. During the fiscal year ended September 30, 2005, the Fund utilized
$84,188,783 of capital loss carryforward to offset capital gains realized in
that fiscal year.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund.
Accordingly, the following amounts have been reclassified for September 30,
2006. Net assets of the Fund were unaffected by the reclassifications.
36 | OPPENHEIMER DISCOVERY FUND
REDUCTION TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
REDUCTION TO NET INVESTMENT REALIZED LOSS
PAID-IN CAPITAL LOSS ON INVESTMENTS
-----------------------------------------------------
$ 9,059,924 $ 8,968,491 $ 91,433
No distributions were paid during the years ended September 30, 2006 and
September 30, 2005.
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of September 30, 2006 are noted below. The
primary difference between book and tax appreciation or depreciation of
securities and other investments, if applicable, is attributable to the tax
deferral of losses or tax realization of financial statement unrealized gain or
loss.
Federal tax cost of securities $ 660,950,509
=============
Gross unrealized appreciation $ 106,060,245
Gross unrealized depreciation (36,446,718)
-------------
Net unrealized appreciation $ 69,613,527
=============
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Fund has adopted an unfunded retirement plan for the
Fund's independent trustees. Benefits are based on years of service and fees
paid to each trustee during the years of service. During the year ended
September 30, 2006, the Fund's projected benefit obligations were decreased by
$31,562 and payments of $15,887 were made to retired trustees, resulting in an
accumulated liability of $144,932 as of September 30, 2006.
The Board of Trustees has adopted a deferred compensation plan for independent
trustees that enables trustees to elect to defer receipt of all or a portion of
the annual compensation they are entitled to receive from the Fund. For purposes
of determining the amount owed to the Trustee under the plan, deferred amounts
are treated as though equal dollar amounts had been invested in shares of the
Fund or in other Oppenheimer funds selected by the Trustee. The Fund purchases
shares of the funds selected for deferral by the Trustee in amounts equal to his
or her deemed investment, resulting in a Fund asset equal to the deferred
compensation liability. Such assets are included as a component of "Other"
within the asset section of the Statement of Assets and Liabilities.
Deferral of trustees' fees under the plan will not affect the net assets of the
Fund, and will not materially affect the Fund's assets, liabilities or net
investment income per share. Amounts will be deferred until distributed in
accordance to the Plan.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.
37 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts, to the extent they are not
offset by positive cash balances maintained by the Fund, at a rate equal to the
Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item,
if applicable, represents earnings on cash balances maintained by the Fund
during the period. Such interest expense and other custodian fees may be paid
with these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
38 | OPPENHEIMER DISCOVERY FUND
YEAR ENDED SEPTEMBER 30, 2006 YEAR ENDED SEPTEMBER 30, 2005
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
CLASS A
Sold 1,360,805 $ 62,660,177 1,710,631 $ 70,927,391
Redeemed (4,294,138) (189,261,772) 1 (4,488,123) (186,615,637) 2
-------------------------------------------------------------------
Net decrease (2,933,333) $(126,601,595) (2,777,492) $(115,688,246)
===================================================================
- ---------------------------------------------------------------------------------------------
CLASS B
Sold 268,790 $ 10,870,343 410,947 $ 15,323,145
Redeemed (1,102,349) (45,090,086) 1 (1,346,830) (50,083,732) 2
-------------------------------------------------------------------
Net decrease (833,559) $ (34,219,743) (935,883) $ (34,760,587)
===================================================================
- ---------------------------------------------------------------------------------------------
CLASS C
Sold 146,254 $ 6,048,309 183,928 $ 6,990,221
Redeemed (269,877) (11,122,535) 1 (382,350) (14,528,876) 2
-------------------------------------------------------------------
Net decrease (123,623) $ (5,074,226) (198,422) $ (7,538,655)
===================================================================
- ---------------------------------------------------------------------------------------------
CLASS N
Sold 95,084 $ 4,313,062 117,491 $ 4,818,431
Redeemed (96,225) (4,300,029) 1 (133,360) (5,499,044) 2
-------------------------------------------------------------------
Net increase (decrease) (1,141) $ 13,033 (15,869) $ (680,613)
===================================================================
- ---------------------------------------------------------------------------------------------
CLASS Y
Sold 1,786,681 $ 79,627,619 211,578 $ 9,080,032
Redeemed (852,389) (39,897,457) 1 (642,146) (27,521,716) 2
-------------------------------------------------------------------
Net increase (decrease) 934,292 $ 39,730,162 (430,568) $ (18,441,684)
===================================================================
1. Net of redemption fees of $11,926, $1,806, $806, $213 and $1,909 for Class A,
Class B, Class C, Class N and Class Y, respectively.
2. Net of redemption fees of $6,692, $1,124, $427, $99 and $451 for Class A,
Class B, Class C, Class N and Class Y, respectively.
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended September 30, 2006, were as
follows:
PURCHASES SALES
-------------------------------------------------------
Investment securities $1,071,730,876 $1,206,239,300
39 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
average annual rate as shown in the following table:
FEE SCHEDULE
-------------------------------------------------
Up to $200 million of net assets 0.75%
Next $200 million of net assets 0.72
Next $200 million of net assets 0.69
Next $200 million of net assets 0.66
Next $700 million of net assets 0.60
Over $1.5 billion of net assets 0.58
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended September 30, 2006, the Fund paid
$2,563,003 to OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
periodically at an annual rate of up to 0.25% of the average annual net assets
of Class A shares of the Fund. The Distributor currently uses all of those fees
to pay dealers, brokers, banks and other financial institutions periodically for
providing personal services and maintenance of accounts of their customers that
hold Class A shares. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
periods. Fees incurred by the Fund under the plan are detailed in the Statement
of Operations.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Trustees and its independent trustees must determine whether the
Distributor shall be entitled to payment from the Fund of all or a portion of
the service fee and/or asset-based sales charge in respect to shares sold prior
to the effective date of such termination. The Distributor's aggregate
uncompensated expenses under the plan at
40 | OPPENHEIMER DISCOVERY FUND
September 30, 2006 for Class B, Class C and Class N shares were $4,206,857,
$1,404,045 and $137,818, respectively. Fees incurred by the Fund under the plans
are detailed in the Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the following table for the period
indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- -------------------------------------------------------------------------------------------------------
September 30, 2006 $ 180,634 $ 3,997 $ 245,850 $ 4,461 $ 4,751
- -------------------------------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. Effective January 1, 2005, the Manager
has voluntarily agreed to reduce its advisory fee rate for any quarter during
the calendar year ending December 31, 2005, by 0.05% of the Fund's average daily
net assets if the Fund's trailing one-year total return performance, measured at
the end of the prior calendar quarter, was in the fourth or fifth quintile of
the Fund's Lipper peer group. However, if the Fund's performance was in the
third quintile or higher for a calendar quarter, the advisory fee reduction
would be terminated for the remainder of the calendar year. During the year
ended September 30, 2006, the Manager waived $104,389 of its fees. The advisory
fee reduction is a voluntary undertaking and may be terminated by the Manager at
any time.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class.
During the year ended September 30, 2006, OFS waived $7,918, $22,540, $26,183,
$6,164 and $22,911 for Class A, Class B, Class C, Class N and Class Y shares,
respectively. This undertaking may be amended or withdrawn at any time.
- --------------------------------------------------------------------------------
5. ILLIQUID OR RESTRICTED SECURITIES
As of September 30, 2006, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 10% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Securities that are illiquid or
41 | OPPENHEIMER DISCOVERY FUND
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. ILLIQUID OR RESTRICTED SECURITIES Continued restricted are marked with the
applicable footnote on the Statement of Investments. Information concerning
restricted securities is as follows:
VALUATION AS OF UNREALIZED
ACQUISITION SEPTEMBER 30, APPRECIATION
SECURITY DATES COST 2006 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
Candescent Technologies Corp.,
$2.50 Cv., Series D, Vtg 3/31/95 $ 3,000,000 $ -- $ (3,000,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series E, Vtg 4/24/96 4,400,000 -- (4,400,000)
Candescent Technologies Corp.,
Sr. Exchangeable, Series F, Vtg 6/11/97 1,500,000 -- (1,500,000)
Discovery Laboratories, Inc.
Wts., Exp. 9/20/10 6/18/03 -- 128,924 128,924
VaxGen, Inc. 11/19/04 999,978 288,673 (711,305)
-----------------------------------------------
$ 9,899,978 $ 417,597 $ (9,482,381)
===============================================
- --------------------------------------------------------------------------------
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
September 30, 2006, the Manager is evaluating the implications of FIN 48. Its
impact in the Fund's financial statements has not yet been determined.
In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 157, FAIR VALUE
MEASUREMENTS. This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and expands
disclosures about fair value measurements. SFAS No. 157 applies to fair value
measurements already required or permitted by existing standards. SFAS No. 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. As of September
30, 2006, the Manager does not believe the adoption of SFAS No. 157 will
materially impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements on changes in net assets for the
period.
42 | OPPENHEIMER DISCOVERY FUND
- --------------------------------------------------------------------------------
7. LITIGATION
A consolidated amended complaint was filed as a putative class action against
the Manager and the Transfer Agent and other defendants (including 51 of the
Oppenheimer funds including the Fund) in the U.S. District Court for the
Southern District of New York on January 10, 2005 and was amended on March 4,
2005. The complaint alleged, among other things, that the Manager charged
excessive fees for distribution and other costs, and that by permitting and/or
participating in those actions, the Directors/Trustees and the Officers of the
funds breached their fiduciary duties to fund shareholders under the Investment
Company Act of 1940 and at common law. The plaintiffs sought unspecified
damages, an accounting of all fees paid, and an award of attorneys' fees and
litigation expenses.
In response to the defendants' motions to dismiss the suit, seven of the
eight counts in the complaint, including the claims against certain of the
Oppenheimer funds, as nominal defendants, and against certain present and former
Directors, Trustees and Officers of the funds, and the Distributor, as
defendants, were dismissed with prejudice, by court order dated March 10, 2006,
and the remaining count against the Manager and the Transfer Agent was dismissed
with prejudice by court order dated April 5, 2006. The plaintiffs filed an
appeal of those dismissals on May 11, 2006.
The Manager believes that the allegations contained in the complaint are
without merit and that there are substantial grounds to sustain the district
court's rulings. The Manager also believes that it is premature to render any
opinion as to the likelihood of an outcome unfavorable to it, the funds, the
Directors/Trustees or the Officers on the appeal of the decisions of the
district court, and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.
43 | OPPENHEIMER DISCOVERY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER DISCOVERY FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Discovery Fund, including the statement of investments, as of
September 30, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 2006, by correspondence
with the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Discovery Fund as of September 30, 2006, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.
KPMG LLP
Denver, Colorado
November 15, 2006
44 | OPPENHEIMER DISCOVERY FUND
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
In early 2007, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2006. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
45 | OPPENHEIMER DISCOVERY FUND
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES; UPDATES TO STATEMENTS OF
INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund is required to
file Form N-PX, with its complete proxy voting record for the 12 months ended
June 30th, no later than August 31st of each year. The Fund's voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing on the SEC's website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
46 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS
FUND, LENGTH OF SERVICE, AGE HELD; NUMBER OF PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL,
TRUSTEE COLORADO 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER
RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
CLAYTON K. YEUTTER, Director of American Commercial Lines (barge company) (since January 2005);
Chairman of the Board Attorney at Hogan & Hartson (law firm) (since June 1993); Director of Covanta
of Trustees (since 2003), Holding Corp. (waste-to-energy company) (since 2002); Director of
Trustee (since 1993) Weyerhaeuser Corp. (1999-April 2004); Director of Cater pillar, Inc. (1993-
Age: 75 December 2002); Director of ConAgra Foods (1993-2001); Director of Texas
Instruments (1993-2001); Director of FMC Corporation (1993-2001). Oversees 45
portfolios in the OppenheimerFunds complex.
MATTHEW P. FINK, Trustee of the Committee for Economic Development (policy research founda tion)
Trustee (since 2005) (since 2005); Director of ICI Education Foundation (education foundation)
Age: 65 (October 1991-August 2006); President of the Investment Company Institute
(trade association) (October 1991-June 2004); Director of ICI Mutual Insurance
Company (insurance company) (October 1991-June 2004). Oversees 45 portfolios
in the OppenheimerFunds complex.
ROBERT G. GALLI, A director or trustee of other Oppenheimer funds. Oversees 55 portfolios in the
Trustee (since 1993) OppenheimerFunds complex.
Age: 73
PHILLIP A. GRIFFITHS, Distinguished Presidential Fellow for International Affairs (since 2002) and
Trustee (since 1999) Member (since 1979) of the National Academy of Sciences; Council on Foreign
Age: 68 Relations (since 2002); Director of GSI Lumonics Inc. (precision medical equipment
supplier) (since 2001); Senior Advisor of The Andrew W. Mellon
Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member
of the American Philosophical Society (since 1996); Trustee of Woodward
Academy (since 1983); Foreign Associate of Third World Academy of Sciences;
Director of the Institute for Advanced Study (1991-2004); Director of Bankers
Trust New York Corporation (1994-1999); Provost at Duke University (1983-
1991). Oversees 45 portfolios in the OppenheimerFunds complex.
MARY F. MILLER, Trustee of the American Symphony Orchestra (not-for-profit) (since October
Trustee (since 2004) 1998); and Senior Vice President and General Auditor of American Express
Age: 64 Company (financial services company) (July 1998-February 2003). Oversees 45
portfolios in the OppenheimerFunds complex.
JOEL W. MOTLEY, Director of Columbia Equity Financial Corp. (privately-held financial adviser)
Trustee (since 2002) (since 2002); Managing Director of Carmona Motley, Inc.(privately-held financial
Age: 54 adviser) (since January 2002); Managing Director of Carmona Motley
Hoffman Inc. (privately-held financial adviser) (January 1998-December 2001);
Member of the Finance and Budget Committee of the Council on Foreign
Relations, the Investment Committee of the Episcopal Church of America, the
Investment Committee and Board of Human Rights Watch and the Investment
Committee of Historic Hudson Valley. Oversees 45 portfolios in the
OppenheimerFunds complex.
47 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
KENNETH A. RANDALL, Director of Dominion Resources, Inc. (electric utility holding company)
Trustee (since 1985) (February 1972-October 2005); Former Director of Prime Retail, Inc. (real estate
Age: 79 investment trust), Dominion Energy Inc. (electric power and oil & gas producer),
Lumberman's Mutual Casualty Company, American Motorists Insurance
Company and American Manufacturers Mutual Insurance Company; Former
President and Chief Executive Officer of The Conference Board, Inc. (international
economic and business research). Oversees 45 portfolios in the
OppenheimerFunds complex.
RUSSELL S. REYNOLDS, JR., Chairman of The Directorship Search Group, Inc. (corporate governance consulting
Trustee (since 1989) and executive recruiting) (since 1993); Life Trustee of International House
Age: 74 (non-profit educational organization); Founder, Chairman and Chief Executive
Officer of Russell Reynolds Associates, Inc. (1969-1993); Banker at J.P. Morgan &
Co. (1958-1966); 1st Lt. Strategic Air Command, U.S. Air Force (1954-1958).
Oversees 45 portfolios in the OppenheimerFunds complex.
JOSEPH M. WIKLER, Director of the following medical device companies: Medintec (since 1992) and
Trustee (since 2005) Cathco (since 1996); Director of Lakes Environmental Association (since 1996);
Age: 65 Member of the Investment Committee of the Associated Jewish Charities of
Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-
December 2001). Oversees 45 portfolios in the OppenheimerFunds complex.
PETER I. WOLD, President of Wold Oil Properties, Inc. (oil and gas exploration and production
Trustee (since 2005) company) (since 1994); Vice President, Secretary and Treasurer of Wold Trona
Age: 58 Company, Inc. (soda ash processing and production) (since 1996); Vice President
of Wold Talc Company, Inc. (talc mining) (since 1999); Managing Member of
Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of
the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and
Director of PacifiCorp. (electric utility) (1995-1999). Oversees 45 portfolios in the
OppenheimerFunds complex.
BRIAN F. WRUBLE, General Partner of Odyssey Partners, L.P. (hedge fund) (since September 1995);
Trustee (since 2005) Director of Special Value Opportunities Fund, LLC (registered investment company)
Age: 63 (since September 2004); Member of Zurich Financial Investment Advisory
Board (insurance) (since October 2004); Board of Governing Trustees of The
Jackson Laboratory (non-profit) (since August 1990); Trustee of the Institute for
Advanced Study (non-profit educational institute) (since May 1992); Special
Limited Partner of Odyssey Investment Partners, LLC (private equity investment)
(January 1999-September 2004); Trustee of Research Foundation of AIMR (2000-
2002) (investment research, non-profit); Governor, Jerome Levy Economics
Institute of Bard College (August 1990-September 2001) (economics research);
Director of Ray & Berendtson, Inc. (May 2000-April 2002) (executive search
firm). Oversees 55 portfolios in the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH
AND OFFICER FLOOR, NEW YORK, NEW YORK 10281-1008. MR. MURPHY SERVES AS A TRUSTEE FOR AN INDEFINITE
TERM, OR UNTIL HIS RESIGNATION, RETIREMENT, DEATH OR REMOVAL AND AS AN OFFICER FOR
AN INDEFINITE TERM, OR UNTIL HIS RESIGNATION, RETIREMENT, DEATH OR REMOVAL. MR.
MURPHY IS AN INTERESTED TRUSTEE DUE TO HIS POSITIONS WITH OPPENHEIMERFUNDS, INC.
AND ITS AFFILIATES.
48 | OPPENHEIMER DISCOVERY FUND
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director (since June 2001) and President
Trustee, President and (since September 2000) of the Manager; President and a director or trustee of
Principal Executive Officer other Oppenheimer funds; President and Director of Oppenheimer Acquisition
(since 2001) Corp. ("OAC") (the Manager's parent holding company) and of Oppenheimer
Age: 57 Partnership Holdings, Inc. (holding company subsidiary of the Manager) (since
July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the
Manager) (since November 2001); Chairman and Director of Shareholder
Services, Inc. and of Shareholder Financial Services, Inc. transfer agent subsidiaries
of the Manager) (since July 2001); President and Director of
OppenheimerFunds Legacy Program (charitable trust program established by
the Manager) (since July 2001); Director of the following investment advisory
subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial
Asset Management Corporation, Trinity Investment Management Corporation
and Tremont Capital Management, Inc. (since November 2001), HarbourView
Asset Management Corporation and OFI Private Investments, Inc. (since July
2001); President (since November 1, 2001) and Director (since July 2001) of
Oppenheimer Real Asset Management, Inc.; Executive Vice President of
Massachusetts Mutual Life Insurance Company (OAC's parent company) (since
February 1997); Director of DLB Acquisition Corporation (holding company parent
of Babson Capital Management LLC) (since June 1995); Member of the
Investment Company Institute's Board of Governors (since October 3, 2003);
Chief Operating Officer of the Manager (September 2000-June 2001); President
and Trustee of MML Series Investment Fund and MassMutual Select Funds
(open-end investment companies) (November 1999-November 2001); Director
of C.M. Life Insurance Company (September 1999-August 2000); President, Chief
Executive Officer and Director of MML Bay State Life Insurance Company
(September 1999-August 2000); Director of Emerald Isle Bancorp and Hibernia
Savings Bank (wholly-owned subsidiary of Emerald Isle Bancorp) (June 1989-June
1998). Oversees 92 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS. ZIBELLI, JR.,
OF THE FUND ZACK, GILLESPIE AND MS. BLOOMBERG, TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET,
NEW YORK, NEW YORK 10281-1008, FOR MESSRS. VANDEHEY, WIXTED, PETERSEN, SZILAGYI AND
MS. IVES, 6803 S. TUCSON WAY, CENTENNIAL, COLORADO 80112-3924. EACH OFFICER SERVES FOR
AN INDEFINITE TERM OR UNTIL HIS OR HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
RONALD ZIBELLI, JR., Vice President of the Manager (since May 2006). Prior to joining the Manager,
Vice President and Portfolio he spent six years at Merrill Lynch, during which time he was a Managing
Manager (since 2006) Director and Small Cap Growth Team Leader, responsible for managing 11 portfolios.
Age: 47 Prior to joining Merrill Lynch Investment Managers, Mr. Zibelli spent 12
years with Chase Manhattan Bank, including two years as Senior Portfolio
Manager (U.S. Small Cap Equity) at Chase Asset Management.
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since
Vice President and Chief March 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial
Compliance Officer Asset Management Corporation and Shareholder Services, Inc. (since June 1983).
(since 2004) Former Vice President and Director of Internal Audit of the Manager (1997-
Age: 56 February 2004). An officer of 92 portfolios in the OppenheimerFunds complex.
49 | OPPENHEIMER DISCOVERY FUND
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999);
Treasurer and Principal Treasurer of the following: HarbourView Asset Management Corporation,
Financial and Accounting Shareholder Financial Services, Inc., Shareholder Services, Inc., Oppenheimer
Officer (since 1999) Real Asset Management Corporation, and Oppenheimer Partnership Holdings,
Age: 47 Inc. (since March 1999), OFI Private Investments, Inc. (since March 2000),
OppenheimerFunds International Ltd. (since May 2000), OppenheimerFunds
plc (since May 2000), OFI Institutional Asset Management, Inc. (since
November 2000), and OppenheimerFunds Legacy Program (charitable trust
program established by the Manager) (since June 2003); Treasurer and Chief
Financial Officer of OFI Trust Company (trust company subsidiary of the
Manager) (since May 2000); Assistant Treasurer of the following: OAC (since
March 1999),Centennial Asset Management Corporation (March 1999-
October 2003) and OppenheimerFunds Legacy Program (April 2000-June
2003); Principal and Chief Operating Officer of Bankers Trust Company-
Mutual Fund Services Division (March 1995-March 1999). An officer of 92
portfolios in the OppenheimerFunds complex.
BRIAN S. PETERSEN, Assistant Vice President of the Manager (since August 2002); Manager/Financial
Assistant Treasurer Product Accounting of the Manager (November 1998-July 2002). An officer of
(since 2004) 92 portfolios in the OppenheimerFunds complex.
Age: 36
BRIAN C. SZILAGYI, Assistant Vice President of the Manager (since July 2004); Director of Financial
Assistant Treasurer Reporting and Compliance of First Data Corporation (April 2003-July 2004);
(since 2005) Manager of Compliance of Berger Financial Group LLC (May 2001-March 2003);
Age: 36 Director of Mutual Fund Operations at American Data Services, Inc. (September
2000-May 2001). An officer of 92 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March
Secretary (since 2001) 2002) of the Manager; General Counsel and Director of the Distributor (since
Age: 58 December 2001); General Counsel of Centennial Asset Management
Corporation (since December 2001); Senior Vice President and General Counsel
of HarbourView Asset Management Corporation (since December 2001);
Secretary and General Counsel of OAC (since November 2001); Assistant
Secretary (since September 1997) and Director (since November 2001) of
OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice
President and Director of Oppenheimer Partnership Holdings, Inc. (since
December 2002); Director of Oppenheimer Real Asset Management, Inc. (since
November 2001); Senior Vice President, General Counsel and Director of
Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since
December 2001); Senior Vice President, General Counsel and Director of OFI
Private Investments, Inc. and OFI Trust Company (since November 2001); Vice
President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice
President and General Counsel of OFI Institutional Asset Management, Inc.
(since November 2001); Director of OppenheimerFunds (Asia) Limited (since
December 2003); Senior Vice President (May 1985-December 2003), Acting
General Counsel (November 2001-February 2002) and Associate General
Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of the
following: Shareholder Services, Inc. (May 1985-November 2001), Shareholder
Financial Services, Inc. (November 1989-November 2001), and
OppenheimerFunds International Ltd. (September 1997-November 2001). An
officer of 92 portfolios in the OppenheimerFunds complex.
50 | OPPENHEIMER DISCOVERY FUND
LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First
Assistant Secretary Vice President (April 2001-April 2004), Associate General Counsel (December
(since 2004) 2000-April 2004), Corporate Vice President (May 1999-April 2001) and Assistant
Age: 38 General Counsel (May 1999-December 2000) of UBS Financial Services Inc. (formerly,
PaineWebber Incorporated). An officer of 92 portfolios in the
OppenheimerFunds complex.
KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary
Assistant Secretary (since October 2003) of the Manager; Vice President (since 1999) and Assistant
(since 2001) Secretary (since October 2003) of the Distributor; Assistant Secretary of
Age: 41 Centennial Asset Management Corporation (since October 2003); Vice
President and Assistant Secretary of Shareholder Services, Inc. (since 1999);
Assistant Secretary of OppenheimerFunds Legacy Program and Shareholder
Financial Services, Inc. (since December 2001); Assistant Counsel of the
Manager (August 1994-October 2003). An officer of 92 portfolios in the
OppenheimerFunds complex.
PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since
Assistant Secretary September 2004); First Vice President (2000-September 2004), Director (2000-
(since 2004) September 2004) and Vice President (1998-2000) of Merrill Lynch Investment
Age: 42 Management. An officer of 92 portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
51 | OPPENHEIMER DISCOVERY FUND
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that the registrant does
not have an audit committee financial expert serving on its Audit Committee. In
this regard, no member of the Audit Committee was identified as having all of
the technical attributes identified in Instruction 2(b) to Item 3 of Form N-CSR
to qualify as an "audit committee
financial expert," whether through the type of specialized education or
experience described in that Instruction. The Board has concluded that while the
members of the Audit Committee collectively have the necessary attributes and
experience required to serve effectively as an Audit Committee, no single member
possesses all of the required technical attributes through the particular
methods of education or experience set forth in the Instructions to be
designated as an audit committee financial expert.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The principal accountant for the audit of the registrant's annual financial
statements billed $31,000 in fiscal 2006 and $31,000 in fiscal 2005.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed $169,654 in fiscal 2006 and $156,805 in fiscal 2005 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services include: Internal control reviews
(c) Tax Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years.
The principal accountant for the audit of the registrant's annual financial
statements billed $1,536 in fiscal 2006 and $5,000 in fiscal 2005 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such services include: preparation of form 5500.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees in during to the registrant during the last two
fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years to the
registrant's investment adviser
or any entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant.
(e) (1) During its regularly scheduled periodic meetings, the registrant's
audit committee will pre-approve all audit, audit-related, tax and other
services to be provided by the principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its Chairman
for any subsequent new engagements that arise between regularly scheduled
meeting dates provided that any fees such pre-approved are presented to
the audit committee at its next regularly scheduled meeting.
Under applicable laws, pre-approval of non-audit services maybe waived
provided that: 1) the aggregate amount of all such services provided
constitutes no more than five percent of the total amount of fees paid by
the registrant to it principal accountant during the fiscal year in which
services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such
services are promptly brought to the attention of the audit committee of
the registrant and approved prior to the completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $155,336 in fiscal 2006 and $161,805 in fiscal
2005 to the registrant and the registrant's investment adviser or any
entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant related to
non-audit fees. Those billings did not include any prohibited non-audit
services as defined by the Securities Exchange Act of 1934.
(h) No such services were rendered.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
7Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
THE FUND'S GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Governance Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by
executive search firms which the Committee may engage from time to time
and may also consider shareholder recommendations. The Committee may
consider the advice and recommendation of the Funds' investment manager
and its affiliates in making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met
by a trustee nominee. In evaluating trustee nominees, the Committee
considers, among other things, an individual's background, skills, and
experience; whether the individual is an "interested person" as defined in
the Investment Company Act of 1940; and whether the individual would be
deemed an "audit committee financial expert" within the meaning of
applicable SEC rules. The Committee also considers whether the
individual's background, skills, and experience will complement the
background, skills, and experience of other nominees and will contribute
to the Board. There are no differences in the manner in which the
Committee evaluates nominees for trustees based on whether the nominee is
recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates
to present to the
Board and, in such cases where required, to shareholders. Recommendations
for trustee nominees should, at a minimum, be accompanied by the
following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person"
as defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in
a proxy statement concerning the person if he or she was nominated;
and
o the name and address of the person submitting the recommendation
and, if that person is a shareholder, the period for which that
person held Fund shares.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under
the Investment Company Act of 1940. In addition, certain other
relationships with Massachusetts Mutual Life Insurance Company or its
subsidiaries, with registered broker-dealers, or with the Funds' outside
legal counsel may cause a person to be deemed an "interested person."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving
as a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR
270.30a-3(c)) as of 08/31/2006, the registrant's principal executive officer and
principal financial officer found the registrant's disclosure controls and
procedures to provide reasonable assurances that information required to be
disclosed by the registrant in the reports that it files under the Securities
Exchange Act of 1934 (a) is accumulated and communicated to registrant's
management, including its principal executive officer and principal financial
officer, to allow timely decisions regarding required disclosure, and (b) is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms adopted by the U.S. Securities and Exchange Commission.
There have been no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a) (1) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Discovery Fund
By: /S/ JOHN V. MURPHY
----------------------------
John V. Murphy
Principal Executive Officer
Date: 11/15/2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /S/ JOHN V. MURPHY
----------------------------
John V. Murphy
Principal Executive Officer
Date: 11/15/2006
By: /S/ BRIAN W. WIXTED
----------------------------
Brian W. Wixted
Principal Financial Officer
Date: 11/15/2006